Citibank Home Equity Loan

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					O
    Comptroller of the Currency
    Administrator of National Banks

    Washington, DC 20219



                                                                   Conditional Approval #476
                                                                                August 2001
         DECISION OF THE OFFICE OF THE COMPTROLLER OF THE CURRENCY
                         ON THE APPLICATION TO MERGE
                EUROPEAN AMERICAN BANK, UNIONDALE, NEW YORK
                   INTO AND UNDER THE CHARTER AND TITLE OF
             CITIBANK, NATIONAL ASSOCIATION, NEW YORK, NEW YORK

                                      July 2, 2001
    ______________________________________________________________________________

    A. INTRODUCTION

    Citibank, National Association, New York, New York ("Citibank"), applied to the Office of the
    Comptroller of the Currency (“OCC”) for approval to merge with European American Bank,
    Uniondale, New York ("EAB") under Citibank’s charter and title under 12 U.S.C. §§ 215a and
    1828(c) (the “Merger”). This application was based upon an agreement entered into between the
    proponents on February 12, 2001.

    Citibank is a national bank that has its main office in New York, New York, and whose 151
    branches are located solely within the state of New York, predominantly in New York City,
    Westchester and Nassau Counties. EAB is a state bank with its main office in Uniondale, New
    York and whose 96 branches are located solely within New York City and Long Island. The
    majority of its branches are situated in Nassau and Suffolk Counties. Both parties to this
    application are members of the Bank Insurance Fund.

    As of March 31, 2001, Citibank had approximately $396 billion in assets, $71 billion in domestic
    deposits, and $213 billion in foreign deposits. On the same date, EAB had approximately $15
    billion in assets and $11 billion in total deposits. Citibank is an indirect wholly owned
    subsidiary of Citigroup, Inc. (“Citigroup”), a multinational financial holding company. EAB is a
    wholly owned subsidiary of ABN AMRO Bank, N.V., a multinational financial holding
    company incorporated in the Netherlands.

    Citibank and EAB have published notice of the application in general circulation newspapers
    serving the head office cities of those two banks. All written comments received have been
    carefully considered as part of the merger application (see discussion below). 1

    1
     During the public co mment period, the OCC received comments from sixteen individuals or co mmunity
    organizations.
                                                2

The application, filed under the provisions of 12 U.S.C. §§ 215a and 1828(c), seeks to merge
EAB under the charter of Citibank. Citibank will operate the former head office and branches of
EAB as branches of Citibank under 12 U.S.C. § 36(b)(2)(A). As a result of the Merger, Citibank
will also acquire and operate EAB's existing subsidiaries under the provisions of 12 C.F.R. 5.34.

B. The Bank Merger Act

The Bank Merger Act, 12 U.S.C. § 1828(c), requires the OCC's approval for a merger between
insured banks where the resulting institution will be a national bank. Under the Act, the OCC
generally may not approve a merger that would substantially lessen competition. In addition, the
Act also requires the OCC to take into consideration the financial and managerial resources and
future prospects of the existing and proposed institutions, and the convenience and needs of the
community to be served. For the reasons stated below, we find this Merger may be approved
under section 1828(c), subject to the conditions described hereinafter.

1. Competitive Analysis

The OCC reviewed the impact of the proposed transaction on competition for the cluster of
products and services offered by depository institutions in the areas surrounding the target EAB.
There is only one relevant geographic market for this proposal where competition between
Citibank and EAB is direct and immediate: Metropolitan New York-New Jersey.

The OCC applied its standard procedures for determining whether the competitive effects of the
merger in the above market clearly has minimal or no significant adverse competitive effects and
found that to be true.

The banking market consists of the New York counties of Bronx, Dutchess, Kings, Nassau, New
York, Orange, Putnam, Queens, Richmond, Rockland, Suffolk, Sullivan, Ulster and Westchester;
the New Jersey counties of Bergen, Essex, Hudson, Hunterdon, Middlesex, Monmouth, Morris,
Ocean, Passaic, Somerset, Sussex, Union, Warren and certain portions of Mercer; Fairfield
County, Connecticut along with certain portions of New Haven and Litchfield Counties; and
Pike County, Pennsylvania.

Within this market, 290 banks and thrifts compete for $523 billion in deposits. Citibank and its
affiliates, with 162 branches, rank second with a 10.8% market share. EAB, with 96 branches,
ranks tenth with a 2.3% share. With a resulting market share of 13.1%, the Merger would not
increase the second place ranking of Citibank and its affiliates.

In reviewing Citibank’s merger application, the U.S. Department of Justice ("DOJ"), the Federal
Deposit Insurance Corporation ("FDIC"), and the Board of Governors of the Federal Reserve
System ("FRB") also considered the competitive impact of the proposed merger. The DOJ and
FDIC concluded the merger would not produce a significant effect on competition or
concentration of banking resources in the relevant geographic market. The FRB has reserved
comment on this factor for its own Decision Order on a related application now pending with
that agency.

The OCC finds that, while the proposed merger would eliminate a direct competitor from the
Metropolitan New York-New Jersey market, the continuing presence of other banking
                                                 3
alternatives would mitigate any adverse effects. Therefore, the OCC's criteria are satisfied for a
merger that will not have a significantly adverse impact on competition within that banking
market.

2. Financial and Managerial Resources

The financial and managerial resources of Citibank and EAB are presently satisfactory. The
future prospects of the institutions, individually and combined, are favorable. We find the
financial and managerial resources factor is consistent with approval of the merger.

Citibank is a wholly owned indirect subsidiary and the lead bank of Citigroup, a $946 billion
diversified financial holding company that operates on a global basis and is subject to oversight
by numerous regulators. Citibank has assets of $396 billion and total risked-based capital of $37
billion. In the most recent examination, the OCC found the bank to be well-capitalized and well-
managed.

EAB is a wholly owned subsidiary of ABN AMRO Bank, N.V., a multinational financial holding
company incorporated in the Netherlands which also operates on a global basis and is subject to
oversight by numerous regulators. EAB currently has assets of $15 billion and $1 billion in total
risk based capital. In its most recent examination of EAB, the Federal Reserve Bank of New
York found the bank to be well capitalized and well managed.

Among the public comments received was an assertion that Citibank has insufficient controls in
place to prevent money laundering. The bank's compliance with anti- money laundering
regulations is regularly reviewed and monitored as part of the OCC's routine, on-going
supervisory processes. In addition, Citibank has various anti- money laundering internal control
policies and mechanisms in place.

Based upon all the information in the record and our supervisory knowledge of the management
of Citigroup in connection with the operation of Citibank and its affiliated national banks, we
have concluded that Citibank’s financial and managerial resources do not indicate that the
financial condition of the bank resulting from the proposed merger would be less than
satisfactory.

3. Convenience and Needs

The merger will not have an adverse impact on the convenience and needs of the communities to
be served. Citibank will continue to serve the same areas that it a nd EAB now serve. There will
not be a reduction of products or services as a result of the merger. While Citibank anticipates
that some overlapping branches of the resulting institution will be closed as a result of the
transaction, current Citibank and EAB customers, as customers of the resulting bank, will have a
greater number of branches at which to bank.

EAB customers will also benefit from an enhanced array of products and services at the resulting
bank, e.g., insurance products and broker-dealer services, higher lending limits, internet based
products and services, and international operations as well as the investment banking services of
Citibank’s affiliates. Accordingly, we believe the impact of the merger on the convenience and
needs of the communities to be served is consistent with approval of the application.
                                                              4
Several commenters expressed concerns with the possibility that Citibank would close a number
of EAB branches in the New York City Metropolitan Statistical Area (“MSA”). On May 15,
2001, Citibank reported its plans to close twenty- four EAB or Citibank branches that are in close
proximity to other EAB or Citibank branches in its New York marketplace. These
consolidations and closures constitute less than 10% of the total combined Citibank and EAB
branch network, and only three closures are proposed in low- and moderate- income (“LMI”)
census tracts. 2 Citibank has represented that the fifteen stand-alone branches slated for closure
are within approximately one mile of Citibank or EAB b ranches that will remain open. Nine
EAB branches located in supermarkets have also been scheduled for closure due to lack of
economic viability. Citibank states that almost all of EAB’s in-store branches are within three
miles of a full service EAB or Citibank branch that will remain open. Two EAB supermarket
branches will continue to operate, because of their distance from full-service branches and their
location in communities that lack banking services.

Additionally, Citibank has stated that it will follow its branch closing policy for any closure,
consolidation, or relocation. This policy requires, among other things, consideration of the effect
on customers and the approval of Citibank’s CRA Director for any closure. Further, Citibank’s
CRA and Community Relations staff will conduct discussions with affected communities. 3

One commenter also voiced concern that Citibank has a history of closing branches in LMI
neighborhoods. Citibank’s October 26, 1998, Community Reinvestment Act (“CRA”)
Performance Evaluation indicated that Citibank had not closed any branches in LMI areas during
the two year evaluation period and noted that its delivery system was accessible to substantially
all portions of its assessment areas in the New York marketplace. OCC examiners found that
Citibank had not closed any branches in the two years following the 1998 Performance
Evaluation.

C. Community Reinvestment Act

The CRA requires the OCC to take into account each applicant bank’s record of helping to meet
the credit needs of its entire community, including LMI neighborhoods, when evaluating certain
applications. 4 The types of applications that are subject to review under the CRA include
mergers between insured depository institutions. 5 The OCC considers the CRA performance of
each depository institution involved in the transaction. Under the CRA regulation, when
evaluating a bank’s performance, the OCC considers the institution’s capacity and constraints,
including the size and financial condition of the bank and its subsidiaries.




2
    One additional closure is planned in an area ad jacent to a low -inco me census tract.
3
  Federal law requires banks to give notice of proposed branch closings. The Federal Deposit Insurance Act requires
insured depository institutions to provide notice to the appropriate federal regulatory agency at least ninety days
prior to such closing. 12 U.S.C. § 1831r-1. Additionally, the OCC considers a bank’s record of branch closings,
including those in LMI areas, in conducting CRA examinations.
4
    12 U.S.C. § 2903.
5
    12 C.F.R. 25.29(a)(3).
                                                        5
EAB’s most recent CRA Performance Evaluation conducted by the Federal Reserve Bank of
New York, dated March 2, 1998, reflected a “Satisfactory” rating. The Federal Reserve Bank
evaluated EAB’s performance using criteria relative to the bank’s lending, investments, and
services. That Performance Evaluation indicated that no credit practices were identified that
violated the substantive provisions of anti-discrimination laws and regulations.

Citibank’s most recent CRA Performance Evaluation, dated October 26, 1998, reflected a
“Satisfactory” rating. The OCC evaluated Citibank’s performance using criteria relative to the
bank’s lending, investments, and services. That Performance Evaluation indicates that a
concurrent fair lending examination of Citicorp Mortgage, Inc.’s home purchase loans disclosed
no violations of the substantive provisions of anti-discrimination laws or regulations. 6 The
analysis consisted of comparing denied black and Hispanic applicants to approved white
applicants.

In considering Citibank’s and EAB’s CRA record of performance, the OCC took into account
the affordable home loan products these entities offer. Citibank has offered proprietary
affordable mortgage products, as well Fannie Mae and Freddie Mac products, that incorporate
such features as low down payment requirements and flexible qualifying criteria. CitiMortgage,
Inc. (“CitiMortgage”), a subsidiary of Citibank, and Fannie Mae recently announced a five-year,
affordable mortgage lending partnership to expand the availability of flexible mortgage products.
EAB has made affordable mortgages available through, among other products, the EAB
Neighborhood Mortgage Program. This product features flexible loan qualifying guidelines, a
low down payment, and discounted interest rates, fees and closing costs for LMI applicants and
properties in LMI communities. 7

1. Comments Regarding Associates National Bank

A number of commenters expressed concern regarding the “Needs to Improve” CRA rating of
Associates National Bank, an affiliate of Citibank. Citigroup acquired Associates National Bank
in late 2000 as part of its acquisition of Associates First Capital Corporation. The federal
statutes authorizing the merger of banks located in the same state do not provide for
consideration of the CRA records of affiliates of the merging entities, nor does the CRA itself
provide for such consideration. See 12 U.S.C. §§ 215, 215a, 1828(c), 2903; but see 12 U.S.C. §
1831u(b)(3)(B) (under Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994,
such a consideration is required for certain types of interstate bank mergers).

Therefore, the OCC has not considered Associates National Bank’s CRA rating or record of
performance in connection with this merger. Of course, the CRA rating and record of
performance of Associates National Bank would be considered in any future CRA-covered
application directly involving that bank.

Prior to the OCC’s decision to pose no objection to Citigroup’s Notice of Change in Bank
Control to acquire Associates National Bank, Citigroup pledged in the Notice to implement

6
 Citicorp Mortgage, Inc. was a subsidiary of Cit ibank at the time of the 1998 Performance Evaluation and now
operates under the name CitiMortgage. For ease of reference, Citicorp Mortgage will be referred to as
“CitiMortgage” in the remainder of this document.
7
 Citibank plans to consolidate EA B’s Neighborhood Mortgage Program within existing Citibank affordable
mortgage and purchase assistance programs.
                                                          6
certain initiatives to improve the lending policies and procedures applicable to its consumer
finance operations (“Consumer Finance Initiatives”). The Consumer Finance Initiat ives included
undertakings to:

   Test a “referral up” program in four states before introducing a nationwide program. Under
    the pilot program, a prime credit borrower that applies for a mortgage loan product at a
    CitiFinancial office can be “pre-qualified” for a prime loan and will be provided information
    on how to apply for such a loan through other Citigroup subsidiaries.
   Introduce new lending programs. One program will reward a borrower with timely payments
    by granting interest rate reductions. Another program will offer customers who achieve a
    prime credit status the option of refinancing into a conventional real estate secured loan.
   Offer the option of monthly premium, single premium, and no credit life insurance.
    CitiFinancial will also provide consumers a “user-friendly” means of canceling single
    premium credit life insurance and provide related disclosures. 8
   Offer flexibility to a borrower to choose a product with or without a payment fee.
    CitiFinancial also will reduce from five to three years the term during which prepayment fees
    will be payable on its loans, unless a shorter period is required by state law.
   Prohibit balloon payments and negative amortization. CitiFinancial will continue to prohibit
    balloon payments and negative amortization in loans it originates and will extend this
    prohibition to loans from brokers. In addition, CitiFinancial will prohibit the refinancing of
    below- market rate loans by non-profits.
   Test a limitation on broker fees. Under a pilot in two states, CitiFinancial will cap lender and
    broker fees at 3% and eliminate prepayment fees.
   Implement procedures to review home foreclosure. CitiFinancial will establish a unit
    specifically trained to review pending and potential foreclosure actions and to take other
    action as it deems appropriate such as modifying the loan terms, refunding points or credit
    life insurance payments, and deferring payments until the borrower is able to resume
    payments.
   Review and revise existing CitiFinancial compliance programs. This review will include fair
    lending and compliance and examination policies and procedures in order to identify
    improvements and enhancements. CitiFinancial will also introduce an independent mystery
    shopper program at all CitiFinancial offices and at all former Associates offices.
   Reporting to Credit Bureaus. CitiFinancial also stated it will provide information on
    customer’s payment records to credit bureaus to enable subprime borrowers to benefit from
    improvement in their credit performance.

Citibank notified the OCC that it will provide information on the progress made under the
Consumer Finance Initiatives in July, 2001, with a report on the implementation progress as of
June 30, 2001. The OCC has already been provided with an interim report by Citibank. In
approving this application, the OCC has specifically relied upon Citibank’s representations with
respect to reporting to the OCC on its implementation of the Consumer Finance Initiatives.
Accordingly, it is a condition of this approval that Citibank will provide the OCC with progress

8
  Citigroup has just announced that it will discontinue offering single premiu m credit life insurance. Under this
revision to the Consumer Finance Init iatives, and following approvals by state insurance regulators, if any c onsumer
chooses to purchase credit life insurance in connection with a loan, the consumer will make monthly premiu m
payments that are not financed with the loan. In addit ion, Cit igroup announced that it will begin to offer existing
mortgage customers that had purchased single premiu m credit life insurance the opportunity to convert to monthly
pay insurance.
                                                          7
reports on its implementation of these Consumer Finance Initiatives, beginning no later than July
31, 2001, and quarterly thereafter until the implementation is completed. It is a further condition
of this approval that Citibank notify the OCC concerning significant modifications to the
Consumer Finance Initiatives.

The OCC also has reviewed the comments received in connection with the Associates First
Capital Corporation acquisition. 9 The primary concerns raised by those commenters related to
Citigroup’s subprime lending practices, the targeting of subprime loans to minorities and LMI
geographies, the alleged targeting of prime loans to higher income individuals and geographies,
the size and volume of home improvement loans not tied to home equity in LMI and minority
geographies, and an alleged lack of lending in New York City to LMI census tracts. To the
extent those comments bear on Citibank’s CRA performance, the OCC is taking them into
account in a current CRA examination of Citibank.

2. Citibank’s Home Mortgage Lending

Commenters also raised concerns with respect to Citibank’s level of home mortgage lending to
LMI households and communities and to minority borrowers. Additionally, commenters
expressed concern regarding Citibank’s home improvement lending. These comments are
addressed below.

a. Home Mortgage Lending to LMI Borrowers and in LMI Areas

Two commenters expressed concern that Citibank needed to improve its level of lending to LMI
borrowers and LMI areas in the New York City MSA. 10 However, the OCC’s review of this
concern disclosed that Citibank has an adequate record of lending to LMI areas and borrowers.
OCC examiners recently found that within the LMI census tracts in Citibank’s New York
assessment area, where 10 percent of the housing units are owner occupied, 8% of Citibank’s
home purchase loans, 55% of its home improvement loans, and 7% of its refinance loans were in
those LMI census tracts. 11 In addition, 14% of Citibank home purchase loans, 32% of its home
improvement loans, and 13% of its refinance loans were to LMI borrowers. In response to the
comments received, Citigroup represented that in 2000, 22% of Citibank’s HMDA-reportable


9
 See OCC’s Corporate Decision No. 2000-21, Interpretations and Actions, December 2000, Vol. 13, No. 12, Notice
by Cit igroup Inc. of its intent to acquire a controlling interest in Associates National Ban k (Delaware), Newark,
Delaware.
10
   In connection with the current merger application, many of the commenters raised concerns with the level of
lending to various LMI co mmun ities throughout the nation. While those areas may be within the assessment areas
served by Cit igroup bank or thrift subsidiaries that are affiliated with Cit ibank, Citibank’s CRA assessment areas
within the continental Un ited States are confined to the New Yo rk City MSA and the Nassa u-Suffolk MSA. See 12
C.F.R. 25.41 (d iscussing delineation of assessment areas). Accordingly, the OCC did not investigate or consider
concerns raised with respect to lending to LMI borrowers and communities in assessment areas for banks other than
Citibank. For examp le, concerns were raised by a commenter with respect to Citibank’s record of lending in
Rochester, New York. Inas much as Rochester is within the assessment area of Citibank (New York State), a state
chartered bank, the OCC did not review the perfo rmance of Citibank (New York State) in that MSA.
11
  The examiners’ rev iew was based on HMDA data fro m October 1, 1998, to June 30, 2000, and included HM DA -
reportable loans generated by Cit ibank, CitiMortgage, CitiFinancial, Citibank, FSB, and Cit iban k (New Yo rk State).
                                                            8
loans were booked in LMI census tracts and 23% to LMI households. 12 With respect to home
purchase loans, Citibank reported that in 2000, 19% of these loans were located in LMI census
tracts and 24% went to LMI households.

b. Home Mortgage Lending to Minority Borrowers

Commenters asserted that 1999 Home Mortgage Disclosure Act (“HMDA”) numbers indicated
Citibank and/or CitiMortgage made more refinance loans (in 17 specified MSAs) or
conventional home purchase loans (in 5 specified MSAs) to whites than to African Americans or
Hispanics and, in some instances, cited denial disparity ratios for those same loans. 13 It is
important to note that HMDA data alone are inadequate to provide a basis for concluding that a
bank is engaged in lending discrimination or in indicating whether its level of lending is
sufficient. HMDA data do not take into consideration borrower capacity, housing prices, and
other factors relevant in each of the individual markets and do not illustrate the full range of the
bank’s lending activities or efforts. Nevertheless, denial disparity ratios are of co ncern to the
OCC and are routinely evaluated in fair lending examinations.

While the OCC was unable to verify the ratios provided by the commenters, the OCC confirmed
that Citibank and CitiMortgage made more loans to whites than to specific minorities. However,
the commenters in most instances did not fully analyze the data in the context of the percentage
of minority populations in the various MSAs or the level of lending to minorities by other
lenders in the same area.

The OCC found that in 11 of the 17 specified MSAs, Citibank and CitiMortgage’s percentage of
lending to minorities was not significantly less than the percentage of lending to minorities
experienced by all lenders in the same MSA. 14 In addition, in the MSAs where commenters
expressed concerns with denial disparity ratios between whites and minorities, the OCC found
that Citibank and CitiMortgage’s denial ratio for the minority in question was actually less than
the denial ratio of all lenders in that particular MSA.

Citibank has represented in its response to commenters that it has a second level review program
in place for all declined applications to ensure fair access to its products. In some instances, a
third level review must occur before an adverse action is taken.
12
  Citigroup’s HM DA analysis included HMDA data for Cit ibank, CitiMortgage, Source One Mortgage
Corporation, Citibank, FSB, Citibank (New York State), and Cit ibank (Nevada), N.A.
13
   One co mmenter exp ressed concerns with the accuracy of the 2000 HM DA Loan Application Reg ister (“LAR”).
OCC examiners recently reviewed the accuracy of Citibank’s 1999 HMDA data reported on the HMDA LA R and
found no significant data errors. Addit ionally, Cit igroup has represented that its business units hav e procedures in
place, such as quarterly management rev iews and internal audits, to ensure the accuracy and completeness of
HMDA data.
14
   The OCC’s rev iew o f the 1999 HM DA data disclosed that Cit ibank and CitiMortgage’s level o f refinance lending
to minorit ies was at least 80% of the level experienced by all lenders in 11 o f the 17 markets. The following is a list
of the MSAs in which CitiMortgage’s percentage of lending to minorit ies was less than 80% of the percentage
experienced by all lenders in that MSA: Buffalo (2.9% for Cit iMortgage vs.16.1% for all lenders); Milwaukee (0.0%
vs. 8.7%, but only 14 total loans originated); Memphis (12.2% vs. 21.2%); Salt Lake City (4.8 % vs. 6.1%); St.
Louis (7.5% vs. 9.8%); and Phoenix (7.0% vs. 11.8). With respect to conventional home purchase loans, Citibank’s
level of lending to minorit ies was at least 80% of the level experienced by all lenders in all 5 M SAs where the
commenters expressed concerns.
                                                9

c. Citibank’s Home Improvement Loan Program

Two commenters expressed concern that Citibank was targeting small dollar amount home
improvement loans to traditionally underserved areas. These commenters questioned the quality
of this product and speculated that Citibank introduced these loans solely to improve the
appearance of its HMDA data. Citibank responded that its initiation of the program in 1997 was
a strategy designed to increase awareness among LMI and minority individuals and communities
nationwide of its home loan products, especially home purchase loans. Citibank represents that
the program has played a more modest role in 2000 and the first part of 2001, and that Citibank
has substantially expanded its “traditional” home purchase lending to LMI borrowers.

OCC examiners investigated the concerns raised about this unsecured loan product and found
that it typically involved an unsecured, small dollar amount loan (e.g., $500), carried a low
interest rate and no closing costs, and was offered in minority and LMI areas in the form of “live
checks” or “preapproved” mail solicitations. We also found that Citibank engaged in targeted
mail marketing of various other unsecured, small dollar loan products in minority and LMI areas
that typically carried a higher loan amount (e.g., $1,000, $2,500 and $5,000) and higher rate of
interest. In addition, we found that Citibank’s reporting of this product as for home
improvement purposes to be in compliance with HMDA reporting requirements.

As noted above, comments related to this loan product, and its responsiveness to the credit needs
of Citibank’s CRA assessment areas, also are being taken into account in a current CRA
examination of Citibank.

We are aware that the New York State Banking Department ("NYSBD") expressed concerns to
Citigroup about this loan product and whether it should be used to fulfill Citigroup’s
undertakings under the terms of a July 22, 1998, letter agreement between Citigroup and the
NYSBD, entered into in connection with the Citigroup/Travelers application in 1998. At issue
appears to be primarily the manner in which the size of these loans was disclosed to NYSBD. In
order to be responsive to these and other community lending concerns, Citigroup has entered into
an agreement with NYSBD, announced on June 26, 2001, to commit to certain new projections
regarding its HMDA-reportable lending in 2001, 2002, and 2003, and to specify the size of the
home improvement loans that will count toward meeting these projections (“agreement”). The
agreement also calls for the creation of new Loan Production Offices (“LPOs”) in predominately
minority areas in New York City, under a three-year pilot program. Based upon our review of
information from the NYSBD and Citigroup, the essence of the issues raised in this matter does
not affect the criteria for our consideration of the present application, as discussed in this
Decision.

3. Subprime Lending and Allegations of Predatory Lending

A number of commenters raised issues concerning the subprime lending activities of various
Citigroup subsidiaries. Most of these concerns related to entities over which the OCC has no
regulatory jurisdiction, such as CitiFinancial Credit Company and the non-bank subsidiaries of
Associates First Capital Corporation. Because the OCC does not have regulatory authority over
these entities, we did not investigate concerns regarding their operations.
                                                          10
With respect to Citibank itself, subprime lending constitutes a small percentage of its mortgage
business. Subprime mortgage loans are made through Source One Mortgage Company, a
subsidiary of CitiMortgage. OCC examiners found that the volume of subprime loans generated
through Source One as of October 31, 2000, represented less than 1% of CitiMortgage’s entire
portfolio.

Additionally, as Citigroup has reported to the FRB in connection with the holding company
application to acquire EAB, CitiMortgage has a “referral- up” program in place. Under this
program, applicants who apply through the subprime channel are automatically considered for
prime credit when certain underwriting criteria are present. Other applicants may be eligible for
consideration for prime credit, depending on their credit scores and the ratio of the loan amount
to the value of the collateral. Further, CitiMortgage’s subprime lending channel (referred to as
“CitiMortgage (Extended Lending Channel)” (“ELC”)) has implemented other safeguards to
protect borrowers, such as limitations on prepayment penalties, refinancing protections, a policy
against originating or purchasing loans with balloon payments or negative amortization, and a
special toll free number for consumer complaints.

Citigroup also represented that corporate policies and standards for compliance with fair lending
laws cover the ELC. The ELC’s underwriting policies and procedures have been reviewed
internally to ensure compliance with fair lending laws. In addition, ELC employees are required
to go through comprehensive fair lending training. The ELC is also subject to internal self-
assessment, corporate audits, and mystery shoppers.

Several commenters noted that the Federal Trade Commission has brought a lawsuit against
Citigroup and CitiFinancial Credit Company alleging that Associates First Capital Corporation
and its subsidiaries “Associates” engaged in various unfair and deceptive practices. For
example, the complaint, filed March 6, 2001, includes allegations that Associates’
advertisements and statements concerning the costs and benefits of certain loan and credit-related
insurance products were deceptive in violation of section 5(a) of the Federal Trade Commission
Act 15 (“FTC Act”). Additionally, the complaint alleges that Associates engaged in unfair debt
collection practices in violation of the FTC Act. Finally, the complaint also alleges violations of
the Truth in Lending Act, Equal Credit Opportunity Act, and Fair Credit Reporting Act. The
defendants have filed a motion to dismiss the complaint. 16

Some commenters requested that a decision on Citibank’s application be delayed until the
lawsuit is resolved. However, the acts at issue in the lawsuit were alleged to have been
committed by companies that are now affiliates of Citibank, and not by Citibank, and, further,
they are alleged to have occurred prior to Citigroup’s acquisition of Associates First Capital
Corporation. Therefore, we do not believe that this matter warrants a delay in our decision.

4. EAB’s Community Development Corporation




15
     15 U.S.C § 45(a)(1).
16
   Motion of Citig roup Inc., CitiFinancial Cred it Co., Associates First Cap ital Corp. & Associates Corp. of N. A m.
to Dis miss Co mplaint, Federal Trade Co mm’n v. Citigroup Inc., et al. , No. 1:01-CV-0606 JTC (N.D. Ga.) (dated
Apr. 16, 2001).
                                                       11
Commenters also expressed a concern with respect to the potential loss of EAB’s Community
Development Corporation (“EABCDC”). Citigroup stated that it intends to integrate EAB’s
community development staff and operations into Citigroup, but will honor EABCDC’s existing
commitments. Citigroup also represented that it is committed to supporting the community
development initiatives of, and to continuing the relationships fostered by, EABCDC. Further,
Citigroup expects that EABCDC’s staff will continue to conduct substantially similar functions
at Citigroup following the merger. However, new community de velopment loans and
investments generated will likely be booked as assets of Citigroup’s various banking
subsidiaries, not of EABCDC.

5. Conclusion Regarding Record of CRA Performance

Based on the banks’ records of CRA performance, discussed above, we find that approval of the
merger is consistent with the Community Reinvestment Act.

D. Disposition of Hearing Requests

All but one of the 16 commenters on this application requested the OCC to conduct a hearing. 17
After careful consideration, the OCC has determined not to conduct a hearing on this merger
application or to extend the comment period.

The general standard the OCC applies to determine whether to hold a public hearing is contained
in 12 C.F.R. 5.11, which provides:

        The OCC generally grants a hearing request only if the OCC determines that written
        submissions would be insufficient or that a hearing would otherwise benefit the
        decisionmaking process. The OCC also may order a hearing if it concludes that a
        hearing would be in the public interest.

The parties requesting hearings believed the OCC should conduct public hearings primarily to
collect testimony on Citigroup’s subprime lending practices. None of the parties indicated why
written submissions would be insufficient to make an adequate presentation of the issues or facts
to the OCC. In addition, the OCC had no other reason to believe that the testimony would
provide the OCC with relevant information on the pending application. Citigroup’s subprime
lending activities are primarily housed in CitiFinancial Credit Company and other holding
company subsidiaries that are neither subsidiaries of the merging entity, Citibank, nor under the
OCC’s regulatory jurisdiction.

E. Retention of Subsidiaries

As part of the Merger application, Citibank proposes to retain and operate EAB's various
subsidiaries which are engaged in activities represented as permissible for national banks. With
the exception of two entities, the EAB subsidiaries engage in activities for which Citibank itself


17
  Two co mmenters also requested the OCC to extend the public co mment period. The OCC is not granting an
extension of the comment period, because the commenters did not demonstrate that additional time was necessary to
develop factual informat ion, and no extenuating circu mstances were present. See 12 C.F.R. 5.10(b)(2)(ii), (iii).
                                                 12
has previously established subsidiaries under the provisions of 12 C.F.R. 5.34 or 24.3. The
remaining entities are engaged in permissible activities described within 12 C.F.R. 5.34(e)(5)(v).
Accordingly, Citibank, as the bank resulting from this merger, is expected to meet the
qualifications of 12 C.F.R. 5.34 and is thus permitted to retain the two EAB subsidiaries.

The applicants have represented that EAB holds no other equity interests or other assets that
would be impermissible for a national bank.

F. CONCLUSION AND APPROVAL

For the reasons set forth above, including the representations of the applicants, we find that the
proposed Merger between Citibank and EAB is authorized as a merger transaction under the
provisions of 12 U.S.C. §§ 215a & 1828(c); Citibank, as the resulting bank after the Merger, is
authorized to retain and operate the former head office and branches of EAB as branches, under
12 U.S.C. § 36(b)(2)(A); Citibank is authorized to retain EAB's various subsidiaries; Citibank
and EAB are in satisfactory condition; and, the proposal is consistent with the Community
Reinvestment Act. Accordingly, the Merger application is hereby approved, subject to the
condition that Citibank provide the OCC with progress reports on implementation of the
Consumer Finance Initiatives, beginning no later than July 31, 2001, and quarterly thereafter,
until implementation of the initiatives is completed. Additionally, for the reasons set forth above,
the requests for a public hearing and for an extension of the comment period are denied.

                                                              7-2-01
Signed                                                        ____________________
Julie L. Williams                                             Date
First Senior Deputy Comptroller
 and Chief Counsel

Application Control Number: 2001-ML-02-0006

				
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